Fee Structures for Commercial Property Management
One of the biggest problems I see in commercial property management is in setting the correct fees for services provided.
Many agents think that fees in management should only be based on passing income or as a flat fee against an ‘industry standard’. That’s the wrong way to do it.
The result can and usually is a property management department that is losing money and has no profit coming back for all the hard work put in.
Differences in Property Management
Make no mistake here; the work in managing any large and significant commercial or retail property is high. Top standards should be maintained with good staff and procedures. That doesn’t happen when you cut corners on fees charged. When you cut the fees you lose the quality component in your services.
Some will say that the base fees are enhanced with leasing fees, or sale commissions when the property is sold; that is the case but it can be a long time between these ‘bonus’ fees. The base management fee has to be more accurately set.
Understand the Cost of Your Time
To get your fee predictions and structures correct in commercial property management the real factor to consider is just how much work the property will require in time and effort.
When you completely understand that fact, you can set your fees based on a time component that applies to the property type, your agency, and your location.
Let’s start the cost and fee assessment with the cost to run the property management department. You must know that number. It can be compiled from a review of your operational costs and your agency budget.
Costs of Operating
When you know the cost to operate, you apply a profit margin of say 25% to get to a target fee per hour. This number is then applied to the amount of management input that is applied to the property on a weekly basis.
Some will ask the question ‘How you can assess time input and expectations to manage a property?’ If you have been in the industry for some time it is quite easy to do based on what you see in the property, the client, the tenant mix, and the local area.
Important Fee Considerations
Consider the following issues as part of that process:
- Inspect the property
- Review the leases for critical dates and the ‘churn’ factor
- Check out the tenant mix for pressures and changes needed
- Understand the landlords requirements
- Review financial history and performance
- Income and expenditure requirements in property operations
- Budget expectations and controls
- Vacancy factors will require fixing with new tenants
- Lease management will be ongoing
- Maintenance expectations and the age of the plant and equipment
- Customer visits (applicable in retail shopping centers)
- Property marketing (retail)
- Tenant volatility
- Tenant management
- Landlord reporting and communication needs
These things will give you a good idea of just how much time is required to manage a property. From that point onward you simply apply an hourly rate to the equation.
If you want to check the ‘industry standard fee’ against your ‘time allocation process’ then do so as it will give you reasons to accept or adjust the expectations that you have.
